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November 16, 2020

Election Results: Should I Change My Investment Strategy?

Election Results

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Election 2020! What a year!

The news, the tweets, the lawn signs!

Honestly, I’m so glad it’s all over. 

Between the election, the pandemic, and the craziness of my kid’s in-person school getting cancelled, uncancelled and then recancelled, it’s been a wild year. One major thing coming to a close feels like a relief. 

Now that we know who won and the dust is settling, I’ve been seeing a lot of financial news stories about what to invest in and what not to invest based on Joe Biden being our next president. 

There are lots of news stories talking about the best stocks to buy based on his political leanings and conversly what stocks will tumble because of his potential policies. 

I’ve read some of those articles and honestly, it sounds like a lot more noise. Just when I’m ready for some calm, we get more noise.

“Buy this, buy that, sell this, sell that!”

It sounds so tiring. Especially after the year we’ve had.

So how am I going to change my investment strategy based on the election results? Not one bit. 

I’m not changing anything. And I’ll tell you why. 

1. The Simplest Thing Can Be the Best Thing

Constantly buying and selling stocks based on the news and hoping to outperform the market is a game very few people win. 

Now are there professionals who can and have beat the market? Sure!

But I don’t care to dedicate my time to trying to outperform a market that over 90% of large-cap fund managers can’t beat over the last 15 years.

Instead, I don’t try to beat the market. I try to just be the market with index investing.

John Bogle, the inventor of the index fund said it best, “Don’t buy the needle in the haystack, just buy the haystack.”

Over the last 90+ years, the S&P 500 has averaged around a 10% annual return. Does that happen ever year? No. That’s the average over 90 years. 

But since I’m a long-term buy-and-hold investor, these are the kind of results I like. 

2. Getting In and Out of the Market Can Affect Your Return

My new friend Echo Huang, CFP said it best when I interviewed her a few weeks ago:

“Time in the stock market is more important than timing of the market. You probably would agree that very few people could predict the stock market well. And just decide when to get back in. And you know what the studies show many many times. Individual investors do not do well and they don't even earn close to market return because of that problem of “emotional investing”.

This is primetime for emotional investing my friends! Your candidate lost or your candidate won – either way, there's a lot of emotions flying around right now.

Huang continues, “S&P 500, if you just leave the money there from 2000 to this year, August 9th, 2020 by a JP Morgan study … If you just invest in the S&P 500 and don't even move, your rate of return would be above 6% per year. But then if you miss the best 10 days, it goes down to 2% per year. So it's only the 10 best days over 20 years and 7 months.”

That’s right! if you were caught out of the market for just 10 days during that 20 year period, you were barely making enough to cover inflation. 

So if the news about the presidential election makes you want to cash in your chips, you may want to think twice. It would be quite difficult to choose exactly when to sell and when to get back in. 

You'd have to be right twice!

3. Stock Predictions Can Be Wrong

Joe Biden talked up the importance of wind and solar in the debates. Does that mean we should all be buying wind and solar stocks?

It sounds logical, but according to acclaimed financial writer Morgan Housel, that logic could be flawed. He found that what we think most candidates will do and what they end up being able to do is very different.

For example, in 2008, there were the same calls for buying green stocks based on Obama’s pro-environmental stance. Green companies like First Solar did not end up doing as well as traditional oil companies like ExxonMobil following an Obama presidency. This was because a lot of the policies weren’t able to be passed due to congressional challenges. 

So in short, there is a lot of big talk and ideas thrown about during the campaign time but not all of it can come to fruition. 

We need to remember that if we’re considering buying and selling stocks based on who our president is.

Final Thoughts on the Elections Results and Changing My Investing Strategy

With all the noise of 2020, I’m not going to add to it. Instead, I’ll sit back, dollar cost average into my diverse portfolio of low-cost index funds, and let compound interest do its magic.

Will I maybe miss out on some higher returns? Maybe.

Would I rather focus on energy, time and attention to more important things like my family? Absolutely. 

Are you changing your investment strategy based on the election?

Please let us know in the comments below.

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The successful warrior is the average man, with laser-like focus.

 Bruce Lee

Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.

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